Esports Gambling and Australian Law
Patrick Lum is willing to bet you'll find this interesting
Independent Senator Nick Xenophon made minor waves in the gaming world a few months ago when he promised to introduce legislation singling out Valve’s popular esports titles Counter-Strike: Global Offensive and DOTA 2. But why are videogames in Senator Xenophon’s crosshairs? The answer, as you might expect, is gambling.
“This is the Wild West of gambling that is actually targeting kids,” he told Fairfax Media back in July. “Instead of shooting avatars, parents soon find [their kids] have shot huge holes through their bank accounts.”
Senator Xenophon, a fierce antigambling advocate, usually restricts his targets to pokies and sports betting. But the world of videogames and esports has attracted much attention from bookmakers and gambling regulators alike in recent years due to its unprecedented growth, with the scene reaching an estimated total value of US$1.1 billion in 2019 according to market researcher Newzoo.
This growth has also fuelled an extensive network of companies and websites that provide gambling
services aimed at the esports audience – as well as a number of scandals revolving around corruption, match-fixing, and underage gambling. Yet the scene remains almost wholly unregulated worldwide, with governments moving slowly to bring archaic legislation in-line with this sudden and utterly baffling market.
Discussion and news articles about esports gambling, wagering and betting often conflates and confuses the various types of gambling activities that are taking place in connection to esports. There are three primary types:
- Wagering is a familiar model, treating esports as events to place bets on; third-party bookies take bets on the outcome of matches and punters can cash out if they win. The major difference in gaming is that bets can also take the form of virtual items as well as cash, most commonly (in CS: GO at least) gun skins.
- Virtual Casinos are not strictly esports related, but have become so in recent years. As above, in-game items such as skins are often used as gambling tokens on third-party sites to play games of (allegedly) pure chance such as roulette, slots, or jackpots or lotto. - Gachapon/Blind Box sets are also not strictly esports related, but have become ubiquitous in the gaming landscape as of late, and are also often the only type of gambling that is built directly into games. Customers open ‘crates’ or similar packages which contain in-game items of varying levels of rarity, often paying per ‘draw’ – either in in-game currency or time, or via microtransactions.
As practically all esports related gambling takes place via the internet, the relevant Australian Federal legislation is the Interactive Gambling Act 2001 (‘IGA’). Varying State and Territories legislation technically cover over-the-counter or phone betting, but it’s largely irrelevant to esports at present. Notably, the IGA is provider-focused; individuals engaging in online betting or gambling aren’t committing offences.
The IGA prohibits both providing and advertising ‘interactive gambling services’, which is defined as ‘games of chance, or mixed skill and chance played for money or items of value over a carriage service’, the carriage service in this instance being the internet. However, there is an explicit exemption for ‘excluded wagering services’ on a number of types of events, including sporting events and a miscellaneous exemption. In other words: you can’t run casino games online, but you can still run a betting service like the TAB.
As the legislation was crafted long before the rise of Facebook, let alone esports, many questions remain as to its real-world application. On the face of it, it would seem that wagering on esports events is permissible while everything else mentioned
above is not. But questions remain. Is esports a ‘sports event’ for wagering purposes, thus gaining certain rights and responsibilities available to official sports? Are virtual skins ‘items of value’, given the fact that they only hold value within the Steam economy or on the black market and can’t officially be cashed out? And although the Department of Communication and the Arts says computer games are regarded as games of skill, what about in-game blind box draws – are they games of chance and thus impermissible under the IGA, despite their massive and still-growing popularity?
These kinds of questions will only be more definitively answered by the courts when someone raises a case that addresses them, or more accurate legislation crafted specifically for esports is enacted. In the meantime, publishers, esports leagues, bookmakers and punters are left to interpret from the IGA – legislation which Xenophon has said “may as well be 150 years old in terms of dealing with these issues.”
THE HOUSE ALWAYS WINS
One of the reasons the situation remains so uncertain is that, to a large extent, game publishers don’t like to associate themselves with gambling in any way. Valve, for instance, has recently responded to a Washington State Gambling Commission inquiry by denying any involvement whatsoever in gambling, the promotion of gambling, or ‘facilitating’ gambling. “A lot of game publishers have a natural antipathy to gambling,” says Ian Smith, Integrity Commissioner of the esports Integrity Coalition. “They don’t like it, they don’t want it. But betting will occur, so what we have to do is be realistic and pragmatic about it."
"With online access, you can have an online liquidity pool, which allows for single events to draw on people from all over the world, allowing a betting market to be profitable,” explains Dr Sally Gainsbury, an internet gambling researcher at the University of Sydney. “The gambling companies have realised this opportunity and begun offering markets on esports at a pro level.”
The largest wagering providers online are traditional bookies moving into the field like Bet 365, UniBet, and Sportsbet, as well as more dedicated esports bookies like Pinnacle and Unikrn (operating in association locally with TabCorp). But smaller operators providing technically-prohibited casino game betting also exist, and with them comes a larger
potential for corruption.
In early July, the CS:GO scene was rocked by revelations that popular streamers Trevor ‘TmarTn’ Martin and Tom ‘ProSyndicate’ Cassell were key staff in a site called CSGO Lotto, promoting the jackpot service to their online following of around ten million subscribers without disclosing their own involvement in it. Others were exposed, or confessed to, gambling on-stream using site-provided skins – effectively house money – in return for exposure and payment. The site CSGO Diamonds, meanwhile, admitted to sharing inside information with notable streamer Moe ‘mOE’ Assad to inflate his on-stream win percentages at their casino games, mainly as a promotional tool.
Since then, Valve has sent ceaseand-desist letters to a number of websites utilising the Steam public API for gambling purposes, with most of them ceasing operation shortly thereafter. Nonetheless, a quick search brings up a number of newer sites that have sprung up to fill the vacuum left by their absence.
“Given that they’re not regulated, [these sites] are unlikely to have any consumer protection measures built into them,” says Dr Gainsbury. “There’re no limits, there’re no warning signs. And there’s nothing to stop sites just fleeing into the night and taking the virtual accounts and items with them.”
Another spectre raised by the intrusion of gambling into esports is match-fixing. “Most stakeholders in esports are ignorant of the threat,” says Smith, who prior to his entry into esports worked as a lawyer for over twenty years in relation to cricket and integrity. “Outside of Korea, what’s happened? iBUYPOWER, Episilon [E-sports]… Mickey Mouse-level cases, opportunistic stuff, a couple of hundred bucks here and there.
“But the problems that have occurred in cricket, in rugby, in football, they’re all coming, and it’s simply a matter of time. There’s only one way this ends, without regulation – in a scandal.”
THE YOUNG ROLL DICE
Xenophon’s primary charge against esports and videogame gambling is the natural potential of videogames to lead to underage gambling, telling TripleJ in August that there was a real risk that young people could develop gambling problems. Rahul Sood, CEO and co-founder of the aforementioned Unikrn, authored a blog post last April contemplating the issue. “When my 13-year-old son and his friends talk about skins betting it
THE PROBLEMS THAT HAVE OCCURRED IN CRICKET, IN RUGBY, IN FOOTBALL, THEY’RE ALL COMING, AND IT'S SIMPLY A MATTER OF TIME
made me seriously uncomfortable,” he wrote. “Responsible and safe gambling should be [legitimate operators’] top priority. Underage gambling is a complete non-starter and should be shut down.” “Underage gambling is a huge problem,” SkinXChange.com lead developer Justin Carlson told Bloomberg back in September 2015, saying that many children were taking their parent’s credit cards without their knowledge and using them to wager skins. “[They often] rack up hundreds or thousands of dollars in skins, only to lose them all on some betting or jackpot site.” Besides gaming’s inherent appeal to younger audiences, the general lack of agegating on unregulated sites and the widespread use of virtual items as tokens is a problem when it comes to stopping underage users. “[Virtual items have] really changed the way people engage with betting,” says Dr Gainsbury. “You don’t have to use real credit cards or accounts which may have age limits or verifications on them.”
She also points out that assessing the value on virtual items is a step removed from simply betting money, making it difficult to assess the actual worth of wagers. “There’s also the fact that these kinds of things may introduce gambling to people who otherwise might not have been introduced to that activity,” she adds.
Certainly, familiarity by exposure has always been regarded as a particularly insidious concept – witness candy cigarettes, banned under State and Territories legislation since 1999 due to its obvious links to the tobacco industry. In a paper prepared for the Victorian Responsible Gambling Foundation, Dr Gainsbury also points out that repeat exposure – even in cases where no real money is involved – may nonetheless encourage viewing of gambling as an acceptable, everyday activity, though she stresses that this has not yet been tested empirically.
In the meantime, a Class-Action Lawsuit against Valve (and CSGO Lotto) which alleged that Valve knowingly ‘allowed an illegal online gambling market’ to ‘take money from teenage customers’ was dismissed in early October on jurisdictional grounds. The case may be re-opened on appeal, but for now, it appears as though the courts have no formal opinion on the matter.
A difficulty in the regulation of esports and esports wagering is the natural fragmentation of the market between the various different games and leagues. League of Legends is different to CS:GO is different to DOTA 2 is different to Starcraft or SMITE – not to mention the plethora of individual associations like ESL Pro League, Esports Championship Series, the upcoming Professional esports Association and so on.
“Every other sport has someone at the centre,” explains Smith, who says the lack of centralisation is a major problem preventing further growth of sponsorship and advertising for the industry. “If you wanted to buy sponsorship of the World Cup, you’d go to FIFA and you’d buy it. If you
WE SHOULD DO SOMETHING BEFORE WE GET SOMETHING IMPOSED ON US BY PEOPLE WHO DON’T UNDERSTAND OUR INDUSTRY OR OUR GAMES
want to invest in an esport, you have to go to 20 different places with different countries, different needs, different abilities…”
“I don’t ever see a coalition of Blizzard, Valve, Riot, and Hi-Rez getting together and deciding there’s going to be a central point,” he continues. “But they might just buy into someone else’s idea of this, if there was a dominant overall provider on the scene.”
The lack of a central authority also has implications for difficulties regarding regulation – not just in integrity, but also in a plethora of other areas including contracts, dispute resolution, and employee rights. But Smith is focused on the integrity side of the picture. “It’s scary for these topend Olympics, World Cup level brands that have been hit by doping scandals, match-fixing scandals, corruption, sexual assaults and so on – they’re terrified, and quite rightly so, of potential associations,” he explains. “But they know that in traditional sports, at least, there’s regulations and systems that are at least trying to deal with it. There’s a degree of brand control they can rely on.”
“Say Panasonic goes to a league and asks them what they would do if there was a match fixing scandal. They’d ban the players. Well, it’s not just a question of how you would react – but also what you are actively, proactively trying to do to try and stop it from happening. And the answer is still, across large parts of the industry, absolutely nothing.”
ALL BETS ARE OFF
Dr Gainsbury believes that industry self-regulation will be the first to move, primarily because otherwise it will hurt the industry’s reputation and, ultimately, bottom line. “Annual competitive events and prize pools have almost doubled since 2012, so when you’re crossing that size, it’s going to have to become legitimate,” she says. “People won’t bet if they don’t think it’s legitimate. So there’ll have to be an industry body organising it all, with regulation to monitor the events and players, just to make sure what consumers are betting on is both a legitimate and fair event.”
Smith, meanwhile, warns that government regulation will step in if the industry does not. “Major scandals always bring the politicians out, particularly in sports – it’s a sexy area, it gets the votes, it gets attention. So I have no doubt if something happens in esports, and we’ve seen this in South Korea already, the relevant government departments would be all over it.
“If the industry had any wisdom at all, they’d say that we should do something about this before we get something imposed on us by people who don’t understand our industry, our game, and our sport,” continues Smith. “It’s absolutely inevitable in my view that regulation will be imposed, unless the industry convinces the politicians and the various gambling commissions that they are acting proactively, and in the best interests of the broad public and the players.”
Certainly Xenophon, despite his many valid points about the glaring inadequacies of our current gambling legislation, gives no indication that he really understands esports, or even just videogames more generally. “Mario Kart is a fantastic game that many millions of people around the world have enjoyed, but there are legitimate questions to ask about a kid’s game being used as a vehicle for online bookmakers and gamblers,” he said in a somewhat bizarre press release attempting to link a legitimate, Mario Kart tournament held in Adelaide with esports wagering. Imagine the headaches ignorance of this sort would provoke if expressed in binding legislation. It's obvious that the industry can no longer afford to be complacent.
“If the industry doesn’t react,” warns Smith, “then others will react for them.”
Senator Xenophon was approached for comment but did not respond by time of writing. Many thanks to Nick Commins of Macquarie University and Christopher Chin, Lawyer at Mills Oakley for their help and advice.
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Weapon skins like these are used to gamble in lieu or realworld currency